Base rate

Posted by Bruce Kahl on January 01, 2005

In Reply to: Base rate posted by MM on January 01, 2005

: Need help:

: "The actual (base) rate for mean reversion is very high."

: What does "base rate" mean here?

: Thanks!

This is more of a financial services question that anything.

The mean reversion strategy is based on the mathematical premise that all prices will eventually move back towards the mean aka the base rate or average return.

Thus, if a stock is underperforming, its price will move towards its average value when the market rebounds.

The "base rate" would be the price at which you would want to see the underlying position move towards so the investor would see a breakeven point or profit.

• Base rate Bob 01/January/05